We need to be more précised what are items the settlement substitutes.
Typically, an accident settlement contains two types of claims:
-- compensation for damaged property and
-- personal injury award.
See for reference IRS publication 525 page 31 - http://www.irs.gov/pub/irs-pdf/p525.pdf
Casualty insurance and other reimbursements. You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft.
So - any portion of your settlement paid for repairs to your car or that is less than your basis - is not included into taxable income.
see also on the same page:
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
However - if your settlement include any other compensations - such as interest, attorney fees, compensation for lost wages, punitive award, etc - these are taxable.
Let me know if you need any help.